The Central Bank of Nigeria (CBN) is reportedly planning to create a bridge bank to aid troubled lenders in the country.
The banking watchdog is looking to start a fund – which will act as a bridge bank – to help struggling banks recover their financial position, Bloomberg reported.
For instance, back in 2018, the CBN bailed out troubled lender Skye Bank, by creating Polaris Bank – a bridge bank that took control of its assets and liabilities.
In its latest plan, CBN will either inject NGN10bn ($26m) into the bridge bank, or an amount determined by its board, the report added.
According to the amended banking laws inked by Nigeria President Muhammadu Buhari, the central bank will infuse capital into the resolution fund every year.
Nigerian lenders will provide annual contributions equivalent to 10 basis points of their total assets.
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Alternatively, they can contribute a percentage which is yet to be determined by the CBN.
This resolution is separate to the Assets Management Corporation of Nigeria (AMCON) set up.
AMCON was created during the 2009 banking crisis, to buy bad debts at Nigerian banks. AMCON is expected to be gradually closed by 2023.
Since the global financial crisis, Nigeria’s top banks have created “strong” capital buffers, the Bloomberg report added.
However, some of the small and medium-sized banks (SMBs) are still grappling from a 2016 economic contraction, and now with the uncertainties brought about by the Covid-19 pandemic.